Tuesday, February 19, 2013

America's Aging Highway Infrastructure - Ignoring the Obvious

The most recent iteration of the State of the Union address hinted at the President's leanings towards investing in America's failing infrastructure through a "Fix-it-First Approach.  Decades of pretending that roads and bridges that were built decades ago never need repair are finally coming home to roost. Think of the number of transport trucks that you see on the roads every day and how many times you drive over the bridge in the run of a week.  Without a healthy transportation infrastructure,  America's economy will suffer.  A study by David Levinson and Matthew Kahn at the Hamilton Project suggests that America has had its priorities in the wrong order for many years, an issue that will become even more apparent in the future.

One of the biggest distractions to repairing America's existing inventory of roads and bridges is government's emphasis on new construction rather than providing much needed care for what is already in place.  We all know that governments at all levels are struggling with maintaining any semblance of fiscal balance, unfortunately, the authors of the study suggest that at least $145 billion (and some studies suggest that this figure could reach $195 billion) will have to be spent annually to maintain and repair America's highways and bridges.

Here is a chart showing how the Interstate Highway System is aging:

Over 80 percent of the current Interstate system is now over 50 years old.  

Here is a map showing America's inventory of structurally deficient bridges:

The average age of a bridge on the Interstate system is more than 45 years; engineers originally designed these bridges to have a lifespan of 40 to 50 years.  Just in case you've forgotten, here's what it looks like when a key Interstate bridge fails unexpectedly:

This Interstate bridge collapse in August 2007 in Minneapolis killed 13 people.  The bridge was built between 1964 and 1967 and the replacement bridge cost nearly $250 million to construct.  The Minnesota Department of Transportation estimated that the bridge closure cost commuters more than $400,000 every day in added travel costs.

Back in 1956, the Highway Revenue Act of 1956 established the Highway Trust Fund (HTF) for the direct purpose of funding the construction of an interstate highway system and aiding in the financing of other primary, secondary and urban routes.  The Highway Revenue Act of 1956 authorized the government to impose a two to three cent per gallon excise tax on gasoline until the year 1972 at which time it would drop to 1.5 cents per gallon which it never did.  A full 100 percent of the federal gasoline taxes collected were transferred to the HTF.  

Here is a chart showing the history of the gasoline excise tax:

By 1990, the tax had risen to 14 cents per gallon with half of the revenues dedicated to reducing the federal deficit.  Today, roughly 90 percent of the funding for the HTF is gleaned from taxes on gasoline and diesel.  Right now and through to September 30th, 2016, the gasoline tax rate stands at 18.4 cents per gallon and 24.4 cents per gallon for diesel.

Despite the increased use of gasoline and the rise in gasoline excise taxes over the decades, the Congressional Budget Office suggests that the Highway Trust Fund will run a deficit of $10 billion in fiscal 2013.  Since 2008, Congress has had to move $34.5 billion from the government's general fund to the HTF to keep it afloat.  Here is a chart showing the CBOs projection of the Highway Trust Fund Account:

If you look at the revenues and outlays lines, in typical government fashion, the HTF is consistently spending more than it is bringing in, running a deficit particularly when the intragovernmental transfers from the Treasury are removed.  Since, under current law, the HTF cannot incur new debt, it will have insufficient revenues to meet all of its obligations by 2015 and by 2023, the estimated shortfall will be nearly $100 billion.

The American Society of Civil Engineers estimates that America is currently underspending by $110 billion every year to maintain the system at current levels.  Even though governments at all levels invest nearly $150 billion annually on infrastructure projects, a hefty percentage of that goes to new projects as shown on this pie chart of federal spending on the 160,000 miles of the National Highway System:

With all of the above in mind, the authors of the study suggest that since funding for surface infrastructure repair is obviously finite, governments should prioritize fixing America's aging highways and bridges first, using the Highway Trust Fund to maintain, repair, replace and enhance the existing system.  This would mean that the federal government could invest an additional $12 billion annually on what America already has rather than building new capacity (even though that is much needed in some places).  The roads and bridges that are most in need of repair or replacement would be given priority.  While some states would initially get more funding if their surface transportation infrastructure was in the worst condition, once repairs were made, these states would receive less funding as time passed and ultimately, all states would cycle through the system and receive  federal funding to repair their existing roads and bridges.

Unfortunately, decades of government overspending on just about everything but repairs to the surface transportation infrastructure has left one of America most valuable and necessary assets vulnerable to the ravages of age.  Now that governments find themselves backed into a deficit and debt corner from which there is no escape, it will be interesting to see how many bridges have to fall before they are forced to admit that there really is a problem.  Sadly, the looming insolvency of the Highway Trust Fund and Washington's uncontrollable deficit spending will make the job of fixing this problem even more difficult.

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